Banks & Credit Cards

What To Do With All My Cash?

2008 has been a pretty good year for me and my family.  We haven’t had any major financial problems, despite the complete failure of one of our vehicles and our decision to have my wife stop working to stay at home with our son.

The main reason none of these decisions has severely impacted our financial health is that we have taken some proactive steps to prevent them from being able to.  We have learned to live on one vehicle (I now commute to and from work by bike) and we moved temporarily in with a relative until we move to go graduate school.  We are extremely fortunate that these options were available to us as they have significantly reduced expenses and saved us a lot of money.

As a result of a naturally high savings rate and these life-style changes we have grown our cash reserves from $15,692 at the end of December 2007 to ~$28,000 today.

Unfortunately, interest rates are nothing like they were a year ago.  Rates in my WaMu savings account were above 5% APY in December of last year.  The last time that I checked they have fallen to a wimpy 1.5% APY.  Oh, how interest rate cuts affect those who horde cash in their bank accounts!

The prospect of earning ~$420 next year for my $28,000  in the bank is not something I look forward to considering that this year (2008) I have already earned well over $600 in interest payments.  I need to find a better way to make my cash work for me and my family’s financial goals.

It might be useful to comment on how this $28,000 is allocated before I get to far into explaining my options:

$13,200 6 Months worth of emergency cash
$11,450 In cash for use in the next 12 months for various planned expenses
$3,500 Tuition for graduate school
Total: $28,150

Nearly 100.00% of this cash is ear marked for use in the next 12 months and needs to be kept highly liquid in case of an emergency.  For that, I probably need a high yield savings account that actually gives me back some interest for socking my cash in it.

Let the high-yield-savings-account or CD-laddering adventure begin.